In my area competitors like Dominoes, Tooginos and Mama Mia all sell pizzas for $69 m.n. (About $5.75) for a 14" one topping pizza. There are street markets with inferior products for less and high end Italian sit-down restaurants that charge more.

I want to use good ingredients and make a better pizza and compete with the big delivery chains for price and service. What are your thoughts?

This might give you a place to start thinking. Just remember that there are no fixed rules, and you have to do with is right in your unique situation - and that may not be the same as what other people are doing.

You might want to check out the FAQs at the PMQ Think Tank, at http://thinktank.pmq.com/viewtopic.php?f=6&t=3374, since it has a section on food costs. The FAQs are dated in many cases so you might want to register with the PMQTT and post your questions there in order to get more recent data.

My recollection is that in the U.S., many independent pizza operators do not believe in competing pricewise with the big pizza chains. They view it as a losing proposition. They look for other ways of differentiating their pizzas from the chains.

Gracias Peter, I will check it out. And thank you for your posts from 8 or 9 years ago about bakers percentages... I have been reading and re-reading the post trying to understand. Actually I am not in the US I am in Tijuana, Baja California, Mexico. If you ever get south of the border look me up and I will buy you a slice or two....

Most people look at food cost as the culprit, but low prices are the real culprit.

The market determines your price. My experience is that trying to make a better pizza and compete with chains on price is suicide. Branding is remarkably powerful. People would rather pay more for a mediocre pizza from chain store than pay less for a better pizza from an independent store.

That's why the large chains are large. It isn't from having delicious food.

Make a different pizza instead. You have to be something different. Better service doesn't count. You need a magic bullet. Something that you make that no one else makes. The chains are going to kill you. You can't take more than 10% of their customers even if you're 25% cheaper in price.

I have always run about 20% food cost on pizza (side orders are higher), but I'm the exception to the rule. Your volume affects whether your food cost is viable. My prices are higher, so I can get away with it.

33% would be the highest food cost I would go on an eat-in restaurant. About 30% may be a reasonable target for you.

Portion and control your cheese very carefully. That's most important in controlling food cost.

Gracias Peter, I will check it out. And thank you for your posts from 8 or 9 years ago about bakers percentages... I have been reading and re-reading the post trying to understand. Actually I am not in the US I am in Tijuana, Baja California, Mexico. If you ever get south of the border look me up and I will buy you a slice or two....

Florentina,

Thank you for your kind offer. I travel about twice a year to Mexico, where my son and his family live, but it is the Puerto Vallarta area.

I sympathize with your plight. From what I have heard, and what other members who are in the pizza business in Mexico have reported on the forum, cheap pizza in Mexico with a lot of toppings seems to be what too many Mexicans prefer. Domino's alone has around 220 stores in Mexico, and they have deep pockets, so competing against them is extremely risky. I fully agree with what La Sera has posted. His post reflects the attitude that I have noted in the posts at the PMQTT. His food cost figure also seems to be in line with what I have read over at the PMQTT. My recollection is something in the high 20s.

Thanks for your reply... do you have a pizza restaurant? what are your pizza related food costs?

38.5% seems a little high.... Jaja I was hoping to hear lower numbers.

I think that chart is trying to show the reality of the restaurant business in the US as a whole and why margins are shrinking. Pizza should be a lower food cost than the restaurant business as a whole. When I was in the restaurant business (not pizza) years ago, I shot for <50% combined food+labor. Food ran about 23-25% but we made EVERYTHING from scratch and didn't sell much in the way of expensive items like steak.

As La Sara noted, in large part, the market sets your prices (though you can price lower than you need to if you don't do your homework). Beyond that, how well you manage your business has a big impact on your food cost. There are some good places to tart on that chart above.

The company I worked for was a chain of about 150 (at the time) cafeterias. The company average food cost was about 28% and the range was about 20%-30% (if you got much over 30%, you didn't have a job for too long). Some of the factors were outside of our control, but how tight a ship you run plays a big factor.

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"We make great pizza, with sourdough when we can, commercial yeast when we must, but always great pizza." Craig's Neapolitan Garage

Thank you all for your help. I am between 32-35% on my pizza costs depending on what toppings are ordered on the pizza. My volume is so low and my family and I are the only labor at this time. The price discounts for buying cheese by the case instead of the piece and the other ingredients in sufficient quantities will bring the costs down to about 24-28% so that should be okay. I will look at those links Peet-zza, thanks.

Most people look at food cost as the culprit, but low prices are the real culprit.

The market determines your price. My experience is that trying to make a better pizza and compete with chains on price is suicide. Branding is remarkably powerful. People would rather pay more for a mediocre pizza from chain store than pay less for a better pizza from an independent store.

That's why the large chains are large. It isn't from having delicious food.

Make a different pizza instead. You have to be something different. Better service doesn't count. You need a magic bullet. Something that you make that no one else makes. The chains are going to kill you. You can't take more than 10% of their customers even if you're 25% cheaper in price.

I have always run about 20% food cost on pizza (side orders are higher), but I'm the exception to the rule. Your volume affects whether your food cost is viable. My prices are higher, so I can get away with it.

33% would be the highest food cost I would go on an eat-in restaurant. About 30% may be a reasonable target for you.

Portion and control your cheese very carefully. That's most important in controlling food cost.

Good luck!

If i could pull one thing out of this post is the statement that LOW PRICE is a main culprit of restaurant failures. This I know for a fact. I know a few guys who failed because they priced themselves too high......but WAAAAY more guys failed because they underestimated their products worth.

Our food costs range from 14% for our 911 spicy pie (18") to 42% for our Philly Cheese Steak. The average is 22%, but the weighted average is 18% - that is, figuring out percentages of each item sold.

Just a note - we wanted to keep everything under 30%. Our Philly Cheese Steak was right at 30% and I wasn't happy with it and neither were some customers. Quality and quantity of meat. I re-tooled the sandwich, now using Australian Ribeye. We now have people who order just the Philly Steak and no pizza - though pizza is by far and away what we sell most. And I'm very happy with it. Actually, I'll put my Philly Steak up against Pat's or Geno's ANY day of the week.

If i could pull one thing out of this post is the statement that LOW PRICE is a main culprit of restaurant failures. This I know for a fact. I know a few guys who failed because they priced themselves too high......but WAAAAY more guys failed because they underestimated their products worth.

Disclaimer: Don't necessarily believe anything I say here. My brain ain't quite right anymore (unless it is). If I come off as rude or argumentative, that's probably not my intention. Rather, that's just me being honest, to myself and everyone else; partly because I don't have enough time left to BS either you or myself. If you are offended by anything I say, it's probably because you think lying to people (to be "polite") is a good idea. I don't.

It really depends on your strategy though. Low prices aren't a bad thing. Lots of people say competing on price alone is a bad idea. I have a family friend who made his fortune just by finding ways to make the same product cheaper.

That's not really competing on price. Competing on price in the commonly held sense implies lowering price while cost is flat. Your friend is an innovator.

Yes and no. I think it can apply both ways. For instance Walmart is always talked about for their business model of just undercutting competitors prices, but they also found way to their cost at the same time.

I always think about how they are responsible for deodorant no longer coming in box.

Yes and no. I think it can apply both ways. For instance Walmart is always talked about for their business model of just undercutting competitors prices, but they also found way to their cost at the same time.

I always think about how they are responsible for deodorant no longer coming in box.

I don't know how much time you've spent in Walmart, but once you get past the advertised items and those on display, they really aren't priced much differently on items of comparable quality than other large stores. It's not uncommon for them to be more expensive. They tend to consistently price down on things that you need a lot of but can't store all that much of given the size - like diapers for example - that keeps you coming back over and over to buy all the other stuff you need too. The perception of price cutting is there, but actually undercutting prices is only a small part of a very complex business model.

Your original post was "Lots of people say competing on price alone is a bad idea." That doesn't describe either of your examples. Neither is competing on price alone. Both have a second side to the story that made the success possible.

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"We make great pizza, with sourdough when we can, commercial yeast when we must, but always great pizza." Craig's Neapolitan Garage

Food cost is important but don't get hung up on it focus more on PROFIT

While markup/food cost is important, so is contribution margin. Would you rather sell an 8" pizza for $6 at a 12.5% food cost or a 16" pizza for $12 at a 25% food cost? $5.25 contribution margin vs $9 contribution margin. Which would you rater have 100 transactions of?